Contra proferentem: the allure of ambiguous boilerplate.

• Author: Boardman, Michelle E.
• Position: Boilerplate: Foundations of Market Contracts Symposium

INTRODUCTION I. THE BIRTH OF BOILERPLATE II. THE FEEDBACK LOOP IN POLICY DRAFTING III. PERVERSE INCENTIVES A. An Interpreted Clause Is a Good Clause B. Drafters Will Write Only to Those Who Read C. Contra Proferentem: Ambiguity by Consensus and the Adverse Possession of Language 1. Ambiguous by Consensus 2. The Adverse Possession of Language CONCLUSION: ENDING THE PRIVATE CONVERSATION INTRODUCTION

Bad boilerplate can shake one's faith in evolution; not only does it not die away, it multiplies. The puzzle is why. Much of boilerplate is ambiguous or incomprehensible. This alienates consumers and is increasingly punished by courts construing the language against the drafter. There must, therefore, be some hidden allure to ambiguous boilerplate. The popular theory is trickery: drafters lure consumers in with promising language that comes to nothing in court. But this trick would require consumers to do three things they do not do--read the language, understand it, and take comfort in it.

There is a hidden allure to ambiguous boilerplate, but the trick lies in the courts, not the consumer. The trick is a private conversation between drafters and courts; excused from the table is the consumer, who could have no fair duty to understand, and so has no duty to read. With the consumer out of the room, edits and additions to boilerplate are targeted to courts alone. The new language does not need to make sense to a layman. It does not even need to make sense standing alone; a judge will read the language in the context of precedent, with the aid of briefing.

Boilerplate, used widely, repeatedly, applied uniformly to all, is like a broad statute, (1) or the First Amendment. (2) An innocent first reader is not on notice that the true meaning of the words is found in the case law. Drafters do not use this language to trick consumers, however, because they no longer care what consumers think of the language. Drafters value boilerplate because courts know what it means.

This Article evaluates the continued abstruseness of boilerplate language despite incentives, judicial and otherwise, for clarity. Several rules and patterns of judicial interpretation aim for clarity, but perversely result in continuity. The linguistic community dwindles to the court and the drafter alone, cutting out the nondrafter, reader, or consumer. This drives drafters deeper and deeper into the arms of existing case law as a primary means of selecting clauses. The danger is that while some consumers may not read the contract, none will read the case law in which any particular turn of phrase is embedded. Precedents speak to the drafter, not to the reader.

The problem is in fullest bloom in the insurance context. Insurers will cling for decades to language that courts continually declare ambiguous and construe against the insurer. Why, in the face of this history, insurers have chosen not to clarify the language, or to stop using it, courts "cannot conceive of an answer." (3) What the court does not realize is that it has fired its last shot, and the insurer knows it.

Any discussion of insurance law is by necessity a discussion of contract law. Some of the discoveries and conclusions of this piece apply equally well to ordinary contract law, or even serve as a warning about the future of consumer contract law. History suggests that where the subspecialty of insurance doctrine leads, ordinary contract doctrine may follow. Far from being the dull cousin of the contract family, insurance is the odd but brilliant prodigy. The law of insurance often deviates from basic contract law at precisely the point where insurance contracts typify the modern consumer contract--boilerplate clauses, little negotiation, written in legalese, and received by the consumer only after the contract has begun.

Insurance is of course more than just the ultimate consumer contract because insurance contracts have their own qualities. Nonetheless, if courts view consumer contracts as disreputable, they view insurance contracts as downright seedy. The result is that insurance law is often the crucible in which new legal approaches to protecting the consumer are formed; more aggressive applications of existing doctrine may arise in the insurance context and return with new vigor when applied to other consumer contracts. (4)

Courts try to improve the language of insurance policies, as a parent tries to improve a child's behavior, both by punishment and by encouragement. The frustration of courts in this endeavor suggests that they realize their efforts are being wasted. As stated by one court in 1970, and repeated by the Supreme Court of South Carolina in 1997:

Ambiguity and incomprehensibility seem to be the favorite tools of the insurance trade in drafting policies. Most are a virtually impenetrable thicket of incomprehensible verbosity. It seems that insurers generally are attempting to convince the customer when selling the policy that everything is covered and convince the court when a claim is made that nothing is covered. (5) Given how rarely insurance policy language is read, even by sophisticated commercial policyholders, who mostly rely on a broker's description, it seems unlikely that policy language is meant to convince would-be policyholders of broad coverage. In fact, one would expect that an attempt to lure in new policyholders with truly incomprehensible language would fail. Evidence supports the proposition advanced here, that the insurers' audience from start to finish is the courts, a practice that leaves policyholders by the wayside, and one that courts unwittingly encourage.

The first perverse incentive is one courts cannot control, but it underlies the other three: the sheer act of having interpreted a clause in a way that allows for predictable application in the future adds value to that clause. With insurance, the value is great enough that this generally makes it more likely, not less, that drafters will retain poor language. With ordinary commercial contracts, the value of certainty will sometimes outweigh a less than ideal clause content, and sometimes not. But where drafters--such as insurers--care more that a clause have a fixed meaning than a particular meaning, path dependence can preclude otherwise desirable improvements in the language.

Second, many courts have come to conclude that nondrafters cannot be required to read their contracts. If insurance language is unredeemable, for example, courts should simply protect the "reasonable expectations" of policyholders as to the scope of their coverage--confusing contrary policy language notwithstanding. (6) The carrot of the "reasonable expectations" doctrine is that if insurers write clearly, the policyholder's contrary expectations will not be considered "reasonable." The message sent by courts is a mixed one, however. A state supreme court, for example, dismissed evidence of clearly contrary policy language due to the absence of proof that the policyholder had knowledge of the language. (7) In other words, if the insurer could not prove the policyholder had read the language, the language could not control the policyholder. As more courts flirt with this approach in the ordinary contract realm, its potential effect deepens.

Third, courts are trapping themselves in a sticky combination of contra proferentem, a consensus approach to finding ambiguity, and what will be called here the adverse possession of language. Contra proferentem is meant to give drafters an incentive to draft cleanly, by construing ambiguous language against the drafter, in favor of coverage. In first determining whether the language is ambiguous, "some courts hold that a difference of opinion among courts of various jurisdictions establishes conclusively that a particular clause is ambiguous, while others hold that it merely constitutes evidence of ambiguity." (8) These latter courts view a split among other jurisdictions as "a factor to be considered in determining the existence of ambiguity." (9) As more courts adopt this approach of follow the leader, national drafters can more easily anticipate how the language will be interpreted, even in jurisdictions where the clause has not yet been litigated. The value of the clause thus goes up, not down. (10)

The problem is compounded by the more than legitimate position courts take when organizations, including insurers, continue to use language that causes years of confusion and costly litigation; at some point the "hostile, open, and notorious" use of such difficult language causes it to be "adversely possessed" by the courts. (11) In short, the user is on notice that courts will construe the language against him. Even those jurisdictions that have not yet ruled on the language, and so do not independently find the language ambiguous, will join other courts in construing the language in favor of the nondrafter. The result, yet again, is that the language has a settled meaning--not necessarily found in a natural reading of the clause--that is retained, just where the evidence demands redrafting. (12)

This Article first examines how the drafting process creates a feedback loop that makes existing language more valuable over time. The network effects and path dependency of shared language are more forceful in insurance than ordinary contract drafting, yet this Article is the first contribution to the subject. Next, the bulk of the Article establishes and analyzes three ways in which courts counterintuitively reinforce the retention of unclear language through the application of interpretative principles. Finally, while the discussion of these perverse incentives is novel, the Conclusion considers some rather obvious solutions.

1. THE BIRTH OF BOILERPLATE

   The infiltration of lawyers in commercial contract drafting, at least in the United States, has led to more than language recycled by a single entity, it has led to communal boilerplate--fixed language that is common to an...